The Democratic message is shaping up as: "The Republicans/the Fed/the Europeans wrecked the recovery, and we weren't smart enough or tough enough to stop them. Vote us."
The Republican message: "Obama could not fix the mess we made. Vote us."
Raise Taxes on Rich to Reward True Job Creators: Nick Hanauer
By - Nov 30, 2011It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Theory of Evolution
When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France by Dassault Aviation SA (AM)), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed
I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
Consider, for example, that a puny 3 percent surtax on incomes above $1 million would be enough to maintain and expand the current payroll tax cut beyond December, preventing a $1,000 increase on the average worker’s taxes at the worst possible time for the economy. With a few more pennies on the dollar, we could invest in rebuilding schools and infrastructure. And even if we imposed a millionaires’ surtax and rolled back the Bush- era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high.
We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.
Republicans are bullys and want to go back to 1925.
Paul Ryan's budget is courageous in the fact that it reveals what true Conservatives have always wanted: A dismantling of the welfare state and a return to the rule of Robber Barons. The real kicker here is that the President is letting them hold the narrative. I can't really take anything that doesn't include tax increases seriously, because it just ignores reality. Paul Ryan voted for Medicare Part D, the perscription drug benefit that is completely unfunded and was used to buy senior voters for the 2004 Presidential election. So Mr. Ryan is not on my list of People Who Want to Get Things Done The Right Way. Voters want all this stuff government provides, and polls show that they would be willing to pay more taxes to avoid benefit cuts. But they don't really need to pay much more. Just let the Bush Tax Cuts expire, and make some tweaks (eliminate the cap on Social Security Taxes from $107k to everything, use the government's power to negotiate cheap drug prices and medical equipment). Why don't Republicans propose increases? Because it would go against what the rich people who run the party behind the scenes want and care about. Plus, the idiotic Constitutional Amendment just signed by all 47 Republican members of the Senate would invalidate all the years of the Reagan Presidency and George Bush Presidency. But the past doesn't matter. Republicans are bullies.
Ezra Klein is lamenting the fact that Obama is almost nowhere to be seen as far as leadership goes.
E.J. Dionne is saying that if Obama doesn't stand up to Republicans, it will be the end of Progressive government.
While I can sympathize with the Tea Party's anger, it has been co-opted by the very forces that have caused their ire. How good must it be to be rich? You spend the last 30 years slowing removing all the restraints set up to keep banking and finance from going crazy. Then when banking is unleashed, you make a TON of money while destroying whatever value the other 99% less wealthy Americans have. After you nearly destroy the economy, you get a government bailout to 'save the system'. A whole bunch of regular Americans see their wealth dry up, their 401(k)'s implode, and stupid wealthy people getting bailed out with taxpayer dollars. Naturally, these Americans take to the streets in protest. Somehow, you are able to co-opt these fed up Americans and convince them that they need to direct their anger not at the wealthy bastards who jiggered the system, but at the government! You have somehow convinced the angry mob that is at your doorstop to turn around and go after the the auto workers and teachers! It's amazing. I guess that you rich people deserve your wealth if you are able to convince that many people to fight against the very institutions that were designed to protect them from the likes of you.
Look at this quote from Thomas Jefferson about corporations:
"I hope we shall take warning from the example and crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws our country."
~ Thomas Jefferson Nov. 12th, 1816
I do take issue with the Tea Party's line of 'take our country back.' Take it back from whom, the majority that voted democratic in 2008? Too bad, we live in America, where the majority rules from elections, not majority rules from poll results.
So now for a posting that is more current:
Can someone PLEASE explain to me how 9% unemployment means that we should ignore doing any kind of federal jobs program and instead focus on austerity measures like the UK for deficit reduction? How is this helpful? It's not. That's the big secret. If Republicans went for a federal jobs program, they would be in effect going against their 'principles' of small government. In terms of what small government means for Republicans, that means less regulation and more corporitization. That's what small government means. Trample the people to help the rich, entitled elites even more. It's reckless and irresponsible and no one who can really make a dent is calling them on this. All the while, we are increasing our defense spending??!?! How is this sensible? I am all for having some austerity in terms of world security. We don't belong on bases all over the place!!! It's dumb! Look at Great Britain. They have embraced austerity measures and have been immediately plunged into another recession. Brilliant, that. We slash our education and infrastructure spending while putting all that money towards nation building. It's idiotic. Even the Pentagon thinks so!
On a Paul Ryan budget note, even folks at the Economist are coming out against his ideas.
The Republicans don’t have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama’s health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office. The word “chutzpah” is insufficient to describe how utterly indefensible the Republican position is, intellectually.Furthermore, Republicans have a completely indefensible position on taxes. In their view, deficits cannot arise from tax cuts. No matter how much taxes are cut, no matter how low revenues go as a share of GDP, tax cuts are never a cause of deficits; they result ONLY AND EXCLUSIVELY from spending—and never from spending put in place by Republicans, such as Medicare Part D, TARP, two unfunded wars, bridges to nowhere, etc—but ONLY from Democratic efforts to stimulate growth, help the unemployed, provide health insurance for those without it, etc.
The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won’t say so. And they adamantly refuse to put on the table any meaningful programme that would actually reduce spending. Judging by polls, most of them seem to think that all we have to do is cut foreign aid, which represents well less than 1% of the budget.
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If there was one thing that seemed certain about the Obama administration, it was their commitment to Keynesian deficit spending to boost the economy out of its slump. But Keynes beware: With unemployment at a whopping 10.2 percent, and probably rising, the White House has begun trumpeting its commitment to Hoover-style deficit busting. On November 13, the White House warned cabinet departments of a spending freeze. The next week, while in China, Barack Obama told an interviewer the United States could suffer from a “double-dip recession” if it didn’t restrain public debt. And just this week, the White House declared its displeasure with House Democrats’ plans for a new job stimulus.
If the administration does block a new stimulus program--either directly or by reinforcing Republican complaints about government spending--that will have severe repercussions, not only on the economic recovery but also on Obama’s political standing. In a Gallup poll last week, Obama’s popularity dropped below 50 percent for the first time. That reflected, perhaps, the turmoil on Capitol Hill over the health care bill, but it seems primarily due to rising unemployment--which, without a new stimulus, will continue to rise over the next year.
Many previous recessions have been cyclical events precipitated by government efforts to stem the inflation created by a boom or other external events, such as an energy crisis. The severe Reagan recession of the early 1980s, for example, came about when the Federal Reserve under Paul Volcker jacked up interest rates to choke off inflation. As inflation eased, the Fed lowered interest rates, and the private economy quickly revived.
But the current recession, like the depression of the 1930s, did not result from the Fed’s attempts to curb inflation. It was the product of a slowdown in industrial production, which was caused by global overcapacity and foreign competition. According to a recent report from the management consulting firm Deloitte, all American industries except for healthcare and aerospace/defense--both of which government heavily regulates and subsidizes--have suffered from declining rates of profit since 1995. A slowdown in the telecom and other core private industries contributed to the recession during 2001-2002. This slowdown--epitomized most recently by autos, but not limited to them in the least--underlies the current recession.
This recession is often described as a financial crisis--and it’s true that the bursting of the housing bubble did precipitate the sharp downturn that began in late 2008. But the bubble itself was a product of global savings (particularly from the Chinese) seeking investment outlets in the United States, finding few in industrial sectors, and turning instead to Treasury bills and derivatives from the inflated housing market. That is, again, similar to the depression of the 1930s, which was precipitated by the stock market crash, but which was underlain by a downturn in auto and other key industries of the 1920s.
This kind of core industrial downturn has proven resistant to the usual remedies for recessions. By drastically reducing interest rates and pumping money into banks that teetered on the edge of insolvency, the Treasury and Federal Reserve did prevent the kind of crash that leveled the financial sector during the early 1930s. But low interest rates and infusions of cash haven’t revived the industrial sector. That is evident from the Federal Reserve’s quarterly survey of bank lending practices. One would expect normally to find that the monetary easing has encouraged lending, but that has not occurred.
In the April and July surveys, 40 and 35 percent, respectively, of loan officers said they had tightened their standards for approving commercial and industrial loans, while 3 percent in the July survey and zero percent in the April survey said they had eased standards “somewhat”. In the most recent October survey, 14 percent of lenders surveyed by the Fed said they had tightened their standards, 86 percent said they had stayed the same, and exactly zero said they had eased. So over the last ten months, loan standards have generally tightened and not eased. What about the demand for loans? The survey showed that 34 percent of loan officers experienced weaker demand, only nine percent “moderately stronger,” and none “substantially stronger demand.”
This portrait of an ailing private sector is mirrored in figures from private investment. According to the Commerce department, private fixed non-residential investment has steadily declined from the second quarter of 2008 through the third quarter of 2009. So where is the growth in gross domestic product--now revised downward to 2.8 percent for the third quarter of 2009--coming from? It’s coming primarily from government spending and investment. Obama’s $787 billion stimulus proposal, which Congress passed last February, contributed some of the jobs as well as slowing the loss of jobs in construction. The principal areas of new employment have been in government-subsidized health and education.
We face an economy that, like that of the mid-1930s, depends primarily on government spending for its growth. Reduce government spending in order to curb the deficit--as Franklin Roosevelt did in 1937--and you’ll cause new and even greater job loss. This is why it is pure folly for the Obama administration to encourage talk about curbing the deficit. What’s needed is exactly the opposite: greater stimulus, greater deficits, and stimulus programs and budgetary expenditures directed not just toward creating jobs, but toward encouraging new areas of private industrial growth, without which the United States is never going to extricate itself from this slump.
Won’t greater deficits lead to greater debt, which will burden our grandchildren with intolerable obligations? They will in the short term, but they are also the only way to avoid even higher debt in the longer term. The current deficits are much more the result of lost revenues than of increased spending--and they will begin to diminish only when revenues (wages and profits) begin to rise again. That won’t happen without deficit spending now.
Won’t greater deficits lead to higher interest rates, which will choke off investment? This might happen in the future, but not currently, as interest rates remain near or below zero and are not expected to rise until the private economy begins to grow. The Chinese and other foreign holders of dollars could, of course, force interest rates upward by dumping their dollars, but they would lose in the process, as the value of their existing holdings would plummet. So while greater deficits might imperil investment in the future, the United States still has a window of opportunity to use deficits to revive its economy.
Much of the current confusion about jobs, deficits, recovery, and recession may pivot on wrong-headed semantics. The economists’ definition of recession assumes that recession and recovery are mutually exclusive categories. If the economy is growing--even at an anemic pace, and from a deep trough--then it is no longer in recession. That would suggest that, with recovery under way, policy-makers can proceed as if there were no recession. But that’s a misleading conclusion.
It’s best to think of a recession, and particularly this one, as one might thinks of a severe illness and recovery. One can be recovering from pneumonia, for instance, but still be very sick with a very high fever and susceptible to a relapse, or, in the language of recessions and recoveries, a “double-dip” recession. The current slump is exactly of that nature. There are positive signs that a recovery is occurring, or could occur, but the underlying signs of weakness in private industry persist. If Obama and his economic advisors neglect them, they could put the country, and the Democrats’ political future, in peril.
John B. Judis is a senior editor at The New Republic and a visiting fellow at the Carnegie Endowment for International Peace.
Tim Geitner should be fired. This is not how we do things.
Now if the aerospace lobby had told us after the 1986 Challenger disaster that the key to better performance was to turbocharge the engines and quit performing preflight inspections, everyone would have agreed that they were crazy. Yet that's essentially what the finance lobby has done over the past decade, and in some weird way we were too mesmerized to recognize it. Within months of a near catastrophe caused by one of the industry's brightest stars, the lobbyists were busily making certain that it would happen again—and that when it did happen, it would be bigger and more disastrous than ever.
